IR’s Role in ‘Say on Pay’

The recession is slowly turning around and unemployment numbers remain high. But company CEOs are seeing their salaries bounce back. According to a USA Today analysis, CEOs got a two percent raise in 2011. Viacom CEO Philippe Dauman raked in more than $43 million last year.

“The latest rise shows that despite the hand-wringing in recent years over the large pay packages many CEOs receive and attempts to reform, the boards are right back to approving increases,” the article says, paraphrasing comments from Eleanor Bloxham, CEO of the Value Alliance.

With say on pay still an issue, one wonders about the IRO’s role in communicating with stakeholders about executive compensation. According to the latest research from IR Insight, the role of investor relations is actually pretty small. But that doesn’t mean they’re excluded all together.

In today’s guest post, Tom Johansmeyer, a New York-based freelance writer and consultant with IR magazine, looks closely at the results of this latest research and offers tips for how IR pros can be prepared when they’re called into action.

Say on Pay, Eh? Where Investor Relations Adds Value by Tom Johansmeyer

Executive compensation is among the enduring issues that came out of the 2008 financial crisis. With say on pay votes being held by shareholders, the challenges associated with communicating proposals with major shareholders would ostensibly be top of mind for the investor relations community.

Investor relations professionals aren’t as involved in say on pay communications as you think. According to the latest Say on Pay Research Report from IR Insight, this is an issue overwhelmingly handled by a company’s corporate secretary or legal officer. However, this doesn’t mean you can sit back and watch. Just being informed can position you to support your company.

1. Of leaders and followers. While there is ostensibly a financial communications role to fill when dealing with executive compensation issues, it clearly takes a back seat to the lawyers. While 92 percent of our corporate secretary/legal officer respondents were involved in say on pay, the same could be said for only 41 percent of the IR directors taking part in the survey.

2. Fait accompli. According to IR Insight’s research, “There is no indication that the involvement of IR in the say-on-pay process has either a positive or a negative impact on the shareholder vote.” The average vote across the IR Insight sample where the IR officer was involved in say on pay reached 86 percent in favor. For those where the IR officer wasn’t involved, the shareholder vote on executive compensation averaged 85 percent in favor.

3. Voice over substance. It’s time to get back to the basics of the IR role: knowing and understanding the major shareholders. According to “Say On Pay,” the IR officers involved in say on pay primarily supported their corporate secretaries, who took the lead in conversations with proxy decision makers at institutional investors. However, the IR officer would “bring market knowledge and awareness if and when requested.”

4. Making a difference anyway. You don’t have to be involved in say on pay for it to fall into your lap. Of the 59 percent of respondents not involved in their company’s say on pay processes, 52 percent did have conversations with investors “about the general issue of executive compensation.”

5. Self-esteem. Of the 80 investor relations professionals surveyed for “Say On Pay,” an astounding 96 percent reported that they “believe senior management’s current view of the importance of IR has either gone up or stayed the same” compared to a year earlier.

So, how can you get involved? The first step is to be ready. Understand what your company is doing in regards to say on pay, and have the right information on hand to address investor questions. Work closely with your corporate secretary or general counsel to help address specific institutional investors appropriately, and bring your knowledge of the market and insights into investors to the table. Even if you aren’t part of the process, you can still do plenty to help!

“Say On Pay” is based on a survey of 80 IR officers (readers of IR magazine), 108 corporate secretaries (readers of Corporate Secretary, IR magazine’s sister publication) from 181 companies, and 2011 say on pay voting results. IR Insight, which conducted the survey, is the research arm of IR magazine.

[image via Rick Reinhard 2011]